Russia, Iran, Iraq Quash Reported Bid To Cut Oil Output

The collapse of oil prices in the past 18 months has caused big economic strains in oil-producing states.

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Russia, Iran, Iraq Quash Reported Bid To Cut Oil Output

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Russia, Iran, and Iraq have quashed a plan reportedly being eyed by Saudi Arabia to lift sagging global oil prices through collective cuts in oil output.

The Energy Intelligence newsletter reported that Saudi Arabia, the largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), was ready to propose a cut of 1 million barrels a day in output at a meeting of the oil cartel on December 4, if non-OPEC countries like Russia joined in.

But Russia, Iran, and Iraq quickly rejected the idea in the run-up to the meeting. Russia has been pumping oil at post-Soviet record high levels this year and has shown no inclination to change that, while Iraq and Iran have plans to try to dramatically increase output in coming years.

"We do not expect our colleagues in OPEC to put pressure on us.... It is not acceptable, it's not fair," Iranian Oil Minister Bijan Zangeneh told reporters in Vienna on December 3, noting that Iran hoped to start raising production next year after economic sanctions are lifted.

"It is our right and anyone cannot limit us to do it. We will not accept anything in this regard," he said.

Iran's production plans on their own would cancel out the 1 million barrel cut eyed by the Saudis. Zanganeh said Iran's goal was to first increase output by half a million barrels a day in early 2016, and eventually raise it by 1 million barrels, bringing Iran's daily total to around 3.8 million barrels a day.

Iraq is also not keen to cut production. Iraqi Oil Minister Adel Abdel Mahdi said his country was sticking to its current production plans after enjoying a significant rise in output this year.

Russian Oil Minister Aleksandr Novak told the RIA Novosti news agency that he saw no need for Moscow to decrease oil production from its 10.7 million-barrel level today. He added that he expected no change in OPEC's output policies at the meeting on December 4.

While the Saudis dismissed as "baseless" the Energy Intelligence report that the kingdom might seek a joint output cut, Saudi Arabia has previously said it would be willing to cut production if fellow OPEC members and non-OPEC countries joined in.

Iraq and Iran are longtime OPEC members. Though Russia has never joined the cartel, it has signaled more willingness to cooperate with the group this year.

The collapse of oil prices in the past 18 months has caused big economic strains in Russia and other oil-producing states while zapping their government revenues, which typically are heavily dependent on oil taxes.

Even wealthy Saudi Arabia is starting to feel pain from the drop in revenues, forcing it to consider potentially unpopular budgetary reforms such as introducing a value-added tax and cutting energy subsidies. Riyadh is also mindful of its need to finance an expensive war in Yemen.

The growing budgetary pressures lent credence to the Energy Intelligence report, which sent oil prices soaring in global trading on December 3.